AGL Energy – the utility that once promoted itself as the “greenest” in Australia – said its main asset, the Loy Yang A brown coal generator, will benefit from the repeal of the carbon price and the likely dilution of the renewable energy target.
In an update to the ASX on Thursday, AGL said it would take a short term hit on earnings from the repeal of the carbon price, but it was generally good for business.
“While the removal of the carbon tax and associated transitional assistance has a negative impact on the short term earnings of the Loy Yang A power station, it has a materially positive impact on its long term value,” it said in a statement.
“Any reduction in the Renewable Energy Target would also have a positive impact on the value of Loy Yang A.”
AGL picked up full ownership of Loy Yang A after the Japanese utility Tepco sought to raise funds to help deal with its Fukushima nuclear disaster. The purchase transformed AGL’s energy profile, trebling its emissions per MWh, and putting its emphasis from green energy to coal power.
It has since followed that deal with the proposed purchase of the Macquarie Generation assets, including 4.6GW of black coal, from the NSW government. With that purchase, its revenues will be geared 12:1 towards fossil fuels over green energy.
AGL, which until recently headed the peak body for the renewable energy industry, the Clean Energy Council, has also called for the renewable energy target to be diluted to a “real” 20 per cent, saying that meeting the 41,000GWh target was not possible.
That claim has been rejected by General Electric, Vestas, the rest of the clean energy industry and even the government’s own modelling. AGL also wants all the small scale scheme for rooftop solar to be scrapped.
In its statement, AGL said its operating earnings would be impacted by the “unseasonally warm weather” in May and June, which had caused demand to fall and wholesale prices to fall as well.
Its earnings would also be reduced by around $100 million due to the cessation of transitional assistance arrangements associated with the carbon tax for Loy Yang A. It also expects a cut of approximately $86 million from AGL’s renewable energy and gas generation portfolios due to the anticipated fall in wholesale electricity prices associated with the removal of the carbon tax.
“AGL does not expect a recovery in the price of Large Generation Certificates in FY15 to offset the anticipated fall in wholesale electricity prices due to the current surplus of certificates and uncertainty surrounding the ongoing review of the Renewable Energy Target by the Federal Government,” it said.
AGL also advised that its LPG extraction plant (HCE) at Kurnell will be closing following the announced closure of the Caltex Oil Refinery. This will further reduce FY15 EBIT by approximately $14 million.
However, AGL esaid the profit falls would be “largely offset by very strong growth in the rest of AGL’s business, underlining the strength of AGL’s business model.”
This includes previously announced additional gas sales into the Queensland market, where rising gas prices have forced up the price of electricity and gas to consumers.